Part 1 of a four-part series by Robert Lawson – Senior consultant, RTG
This article is the first of a four-part series analyzing the retail industry’s software companies’ evolution through acquisitions. Each part of the series will focus on one of the following perspectives:
I. Retailers’ Perspective
II. Software Vendors’ Perspective
III. Consultants’ Perspective
IV. Consumers’ Perspective
Background Comments
The retail software industry is continuously evolving. Companies originally developed and grew organically. Early on, these software companies clustered into solution groups to serve an operational department need such as Inventory Management, Merchandising, Point of Sale, etc. Survival and growth came from providing long-term functionality, reliability, serviceability, performance, etc. As leaders appeared, a new strategy to market share growth evolved through acquisition. This produced mixed results. During this same period, the desire for integrated retail systems (a retail trend) was growing and acquisition became key to the development of ERP systems solutions (consolidation of operational department solutions into an integrated ERP platform).
Today, retail trends and initiatives continue to reshape the software vendor’s solution roadmap. One specific retail direction, omni-channel, is radically transforming the way retailers operate and automate. As the software vendors are aligning their solution roadmaps with directions like this, we see consolidation of department/channel solutions (e.g. POS) into a single, unified commerce engine supporting all channels, aggressively driving new acquisitions. To be on, and maintain a presence in the Top 20 Retail Software Leaderboard can make or break a vendors business. New factors are quickly affecting today’s acquisition strategies. Some of these factors include:
- Consumer Trends
- Technology is now part of the customers expected shopping experience
- Consumer technology, with very short life cycles, is now part of the solution architecture
- Brand consistency across shopping channels
- Retail trends, like omni-channel execution, are driving massive change to consolidate the retailers’ channel solutions (the next dimension beyond operational department solutions consolidation) to support a common business solution across the enterprise, brand(s) and all channels (e.g., Store POS, Kiosks, Self-Checkout, Store Mobile, eCommerce, mCommerce, Call Center, Catalog, etc.).
So, what are these rapidly increasing acquisition events really doing for the retailer? Are the solution roadmaps aligned with retail initiatives and improving? Are today’s software solutions providing practical migration paths for constantly adapting solution roadmaps? Can acquisition events disrupt a retailer’s business operations and customer service?
Retail Software Vendor Acquisition Example
For example, look at Oracle (“the Acquirer”) and see what the net effect of its acquisition strategies are on the targeted acquisitions (“the Target”). As you look at the Acquirer in Figure 1, you can see each underlying target vendor and a corresponding acquisition date.
Figure 1: Oracle’s Retail Acquisitions Diagram
Looking back at the Background History (above content), and then analyzing Figure 1, you can surmise the Acquirer strategy to address trends and initiatives (ERP, e-Commerce and Omni-Channel) in the retail industry. Irrespective of the Acquirer’s strategy, it is important to understand what the track record of each of these events is and what it means to each type of retailer (the customers of the software companies involved):
- Existing customer of the Acquirer
- New customer of the Acquirer
- Existing customer of the Target
So what are the potential effects for each type of Retailer/Customer? Each type of Retailer will experience various combinations of these potential effects (both Pros and Cons) based on how successfully the integration of the acquisition to the Acquirer’s solutions is executed.
- Existing customer of Acquirer – Pros
- New and/or improved functionality
- Supports existing platform architecture and deployment models
- Fully integrated functionality/standardized APIs
- Data Model continuity
- Complements the Solution Roadmap
- Existing customer of Acquirer – (potential) Cons
- Disruption to current solution support and maintenance
- Uncertainty to solution roadmap
- Poor integration and migration path
- Performance/scalability issues
- Inconsistencies within the data model
- Non standardized user interface (UI) and reporting
- New customer of Acquirer – Pros
- Single vendor software solution(s), support and services
- Common platform architecture and deployment models
- Fully integrated solution(s)
- Consolidated solution roadmap
- New customer of Acquirer solution(s) – (potential) Cons
- Disruption to solution support and maintenance
- Uncertainty to solution roadmap
- Poor integration and migration path
- Performance/scalability issues
- Data Model inconsistencies
- Non standardized UI and reporting
- Pre-acquisition solution features, support, services could
- be limited or eliminated
- cause increases in TCO
- Existing customer of acquisition target solution(s) – Pros
- New and/or improved functionality
- Supports existing platform architecture and deployment models
- Fully integrated functionality/standardized APIs
- Data Model continuity
- Complements the solution roadmap
- Additional new resources
- Improved timeliness and QOS
- Existing customer of acquisition target solution(s) – (potential) Cons
- Renegotiate agreements (MSAs, SLOs, SLAs, annual maintenance, etc.)
- Disruption to current solution support and maintenance
- Uncertainty to solution roadmap
- Functionality could be limited or eliminated
- Cause increases in TCO
- Experience timeliness and QOS issues
Takeaways from a Retailer’s Perspective
So, what is it that we have learned as we analyze the history of the retail industry’s software company and acquisitions. Figure 2 below provides a summary focused on risks to mitigate; exposures and correlated impact areas that a Retailer may experience. First, we will look at few well-known common practices and considerations that are used to mitigate these risks and protect the retailer’s investment in vendor-supplied software solutions and services. Then, we will look at potential new practices and considerations today’s retailer should evaluate to address the continuously evolving retail software industry.
Figure 2: Risks to Mitigate
| Known Common Practices | Considerations |
| Software Solution Source Code Escrow | Insure that terms and conditions release source code if the software vendor enters into any form of bankruptcy |
| Purchase Source Code | Source code is provided for licensed productVendor source code updates are provided |
| Potential New Practices | Considerations |
| Software Solution Source Code Escrow | Insure that terms and conditions release source code prior to the change being completed for any change in ownership of the software vendorSoftware vendor must maintain copies of source code for each production release made commercially available in escrowSource code should be included for the current release(s) installed for the retail customerSource code for the last production release with a referenceable installed account that is using it in production (validation of status)Provide all available documentation and any required tools or components required for supporting the production environment(s) |
| Purchase Source Code | Provide all available documentation and any required tools or components required for supporting the production environment(s) |
| 3rd Party Service Organizations/Resources | Obtain referrals to business partners or other organizations that have a history of supporting, maintaining, enhancing the vendors licensed softwarePerform due diligence with 3rd-party customers to understand who (if any) would be most qualified |
| Perpetual Activation Keys/Software Expiration Code | Make sure that the software solution does not require any ongoing activation key(s). If so, make sure a perpetual activation key is provided.Make sure software and any 3rd-party software components which are part of the licensed product do not have any expiration code |
| Regulatory Compliance Statements and Certifications | Obtain legal copies of recent compliance statements such as PCI/DSS, Payment certifications, etc. |
Finally, it is important to remember that no vendor is exempt from these considerations because it is too large to be acquired. Remember IBM Retail Store Systems business acquisition by Toshiba TEC on August 1, 2012. In addition, NCR Corporation was close to being acquired earlier this year.
I hope you have found this first part of the four-part series on retail software company acquisitions helpful. If you have any of your own experiences for common practices and considerations that you would like to share with us, please forward your suggestions to:
Robert Lawson at rlawson@hughes.net, tel. 864-836-0844
or
Robert Amster at bamster@retailtechgroup.com, tel.: 203-329-2621